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MOBILE MONEY, which offers the equivalent of a basic bank account to almost anyone with any sort of phone, has long been seen as a boon for financial inclusion. So recent evidence that it is leaving problems in its wake is causing dismay. Digital credit through mobile phones is leading in some places to overborrowing, hardship and—horror of horrors—even more financial exclusion.

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The starkest evidence is in east Africa. Thanks to M–PESA, its largest mobile-money service, with over 20m users, Kenya has been a pioneer in both mobile money and mobile financial services, such as lending. Anecdotal evidence is mounting of abuses—most notoriously of young Kenyans borrowing to splurge on online betting sites. The number of Kenyans blacklisted by the country’s credit bureaus, and so unable to borrow, has risen to more than 500,000, up from 150,000 three years ago. The proliferation of mobile credit, offered by over 50 competing lenders, is blamed for the increase. The loans are mostly a few dollars and the maturities a matter of days or weeks. But the damage could be lasting.

Two recent surveys, one of borrowers, one of lenders, suggest the scale of the problem. One, by the Consultative Group to Assist the Poor (CGAP), a consortium of donors affiliated to the World Bank, used telephone calls to thousands of mobile-phone users in Kenya and Tanzania and analysis of data from over 20m digital loans. It found that 35% of respondents in Kenya and 21% in Tanzania had taken out digital loans. Of these, 47% in Kenya and 56% in Tanzania reported having made late repayments, and 12% and 31%, respectively, had defaulted. Less than 40% said they were borrowing for business needs. Few admitted to gambling. But, as with the default and late-payment numbers, self-reporting may make this an understatement. Late-night borrowers are more likely to default.

The second survey is the seventh in a series started in 2008 by the Centre for the Study of Financial Innovation (CSFI), a London-based think-tank. It asks microcredit-lenders and the like around the world about their main worries. This year, for the first time, the number-one risk was “technology”. This, the CSFI concluded, “is facilitating growth but making excessive risk-taking more likely, particularly by encouraging people to overborrow.”

Certainly, the appeal of new digital lenders is that they make it easy to borrow. “No paperwork or collateral required” boasts, for example, the website of Mother Finance in Myanmar. SimSim, a digital wallet in Pakistan run by a fintech company, FINJA, and a microcredit provider, offers “nanoloans” that can get bigger as the borrower establishes a repayment history.

The fear is that the problems seen in east Africa herald similar ones in other markets, where mobile money has not yet made such inroads. Two factors could help prevent this. One is better regulation. “Fintech”, says Deborah Drake of the Centre for Financial Inclusion at Accion, a think-tank, “is evolving quicker than regulation can keep up.” Much digital lending in east Africa, for example, is in effect unregulated. But in Pakistan SimSim’s nanoloans were halted for a while, since the funds came from a microfinance firm not authorised to lend for consumption.

The second measure is better credit assessment. By analysing payments and other data on a client’s phone, algorithms can be used to lend to borrowers to whom banks would never lend. As data pile up, microlenders’ judgments should improve—and if they have to give credit bureaus good news as well as bad (often, now, they are not so obliged), they should stop being vehicles for new financial exclusion.

In the meantime, the annualised interest rate on many microloans in Kenya is several hundred percent, suggesting that lenders are, in effect, pricing in high rates of default. And that highlights a tension in the financial-inclusion business. Many of its pioneers have a social mission, namely to alleviate poverty. But they also rely on commercial lenders to carry it out. Digital platforms offer new opportunities for do-gooding microfinanciers, but also for cut-throat payday lenders.